Professional services firms expect growth to continue

“Economy is looking good, business has picked up,” commented a small South Dakota accounting firm. This comment reflects the sentiments of architects, engineers, graphic designers, market researchers, management consultants and other professional services firms that were surveyed by the Federal Reserve Bank of Minneapolis and the Minnesota Department of Employment and Economic Development. The overall results indicate that services firms grew over the past year and that those firms expect growth to continue for both their firms and their state economies.

Firms’ financial results were positive over the past year. More service firms reported growth in sales and profits over the last four quarters than those reporting a decline (see chart). Employment and productivity also expanded over the past year, but, as a small Wisconsin marketing company commented, “Good and qualified help is hard to find and retain.” Twenty-seven percent responded that labor was less available, while only 7 percent noted increased labor availability. However, wages increased by only 2.1 percent on average and benefits increased just 2.5 percent. Most reported that credit conditions were not much of a factor in hiring or capital expenditure decisions.

Going forward, services companies predict another good year. More respondents than not anticipate increased sales revenue and profits over the next four quarters. Productivity and employment are also expected to increase. About a third plan to increase their selling prices, while only 5 percent expect to decrease prices. In addition, 47 percent expect increased input costs, while only 1 percent foresee reduced costs. Wages are expected to rise by an average of 2.3 percent, and benefits are expected to rise by 1.7 percent over the next four quarters.

Looking outside their businesses, more professional services firms expect total employment and consumer spending in their states to increase than to decrease over the next four quarters. Corporate profits are expected to increase across the district. Finally, about half of respondents also expect higher inflation, with only 1 percent believing that inflation will decrease.